I hope this email finds you well.
It is too soon to say what it all means, though the markets are doing the things they do when they expect higher inflation. That is because Donald Trump – who has secured a historic comeback to the presidency, largely on the back of widespread voter anger at rising prices – has a range of policies that are inflationary: a combination of tax cuts, spending, tariffs and mass deportations. One of these things is not like the others.
Consequently, the US dollar is up, while expectations for interest rates cuts are down. As for winners and losers, you'd certainly rather be in private equity and fossil fuels than be a European carmaker or renewable energy producer. Or support Ukrainian self-determination, for that matter.
As for Britain, I think you can expect your taxes to go up some more. Defence spending will almost certainly have to rise as European nations realise they will have to do more for their own security. Not just more fancy talk of strategic autonomy but buying actual weapons systems, training soldiers and building out production capacity.
This will be painful, particularly when tariffs, another key tenet of Trumpism, will hit particularly badly a Britain outside of the protection of the EU's customs union. Such are the downward pressures on growth that we could hit 2.5 per cent of GDP on defence simply by entering a prolonged recession, thereby shrinking the size of the economy and negating the need for higher spending.
You may have read that this was an inflation election. And it is true that people really don't like rising prices, they notice them, and they blame the incumbent. I'd only note that in 2016, US inflation was 1.3 per cent (Trump victory) and in 2020 it was 1.2 per cent (Trump defeat). By September 2024, it had fallen to 2.4 per cent, having peaked at 9.1 per cent in 2022.
Nearly four years ago, Trump tried to hold onto power despite losing. Last night, he was handed it by a willing electorate, and is set to win the popular vote for the first time in three attempts. That would make him the first Republican presidential candidate since George W. Bush in 2004 to do so. With a compliant judiciary, a majority in the Senate and possibly one in the House of Representatives to boot. Meanwhile, and unlike in 2016, the GOP has been remade in his image.
The Democrats' hope that being the party of norms and institutions would save them proved misplaced. The US is a deeply polarised and cynical society, where trust in institutions, not just government but science and media, has ebbed away. And so it is difficult to know where they go from here.
Sweeping statements following presidential elections are a dime a dozen. After 2004, Republicans believed they had secured an enduring majority. By 2008, Democrats thought the same. It rarely works out that way. But in order for one side to make a comeback, democracy – a system in which parties lose elections – has to endure. So, I guess we'll see.
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